Home Selling in 25420>Question Details

Chris Edwards, Home Owner in Gerrardstown, WV

I own a home I am renting out in WV. I have an assumable mortgage. I'd like to sell the property. Shoud the buyer assume or get their own?

Asked by Chris Edwards, Gerrardstown, WV Mon Jul 11, 2011

The property has lost value in this market and it's current value is less than the balance on my mortgage. I'd also like to get cash from the sale to purchase a new property in FL.

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I own this home and is for Sale
0 votes Thank Flag Link Mon Dec 22, 2014
The buyer probably should assume (from your perspective). However, from the buyer's perspective, he/she would be over-paying.

Here's an example:

Let's say your home has a mortgage of $120,000. But it's only worth $100,000. If the buyer were able to assume your $120,000 mortgage, you'd be off the hook. (Though you wouldn't get any cash from the sale to buy a new property.) However, that would mean the buyer was paying (assuming the loan) $120,000 for a property only worth $100,000. Few buyers are going to do that. Would you?

The buyer could go out and get a new loan. But the lender is only going to lend based on the current value of the home. So the buyer could get a conventional 20% down loan, with the bank lending $80,000. Or the buyer could get an FHA loan for $96,500. However, that leaves quite a gap between the financed amount and what you'd need ($120,000) to pay off the loan. Either you or the seller would have to pay the difference. And, again, why would a buyer want to pay $120,000 for a home worth only $100,000?

You could try a short sale, if you qualify. For instance, if the home really is worth only $100,000, you'd find a buyer willing to pay $100,000. The sale would be contingent on your lender approving the sale, since the lender would be losing $20,000. Problems: Short sales can take a long time. They're unpredictable and undependable. And they'll damage your credit enough that you wouldn't be able to buy a new property in Florida.

There is something you could try, but you'd have to know what you're doing. You could lease-option your current property for the amount of the mortgage. In the example above, you'd lease-option it for $120,000. No, it's not worth that today. But you'd make the option long enough (3-5 years) that there'd be a reasonable chance the property could increase in value to that amount in 3-5 years. You'd market it to people who want to buy today, but can't. Perhaps because their credit isn't good enough. With an option period of 3-5 years, they'd have enough time (hopefully) to clean up their credit and qualify for a conventional mortgage. You might even be able to get some money (an option fee) up front. Probably not a lot but, in this example, maybe $4,000-$6,000. So you end up with a bit of cash and a possible sale in 3-5 years at a price high enough to cover your mortgage.

Since you're renting out the home already, the first people you might want to consider are your current renters. You'd ask them if they might be interested in purchasing the house.

Hope that helps.
0 votes Thank Flag Link Mon Jul 11, 2011
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
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